My Account

Statistics

Economic Policy Reforms In South Asia: An Overview And The Remaining Agenda

Author

Pradumna B. Rana

Chia, Wai-Mun

Date of Issue

2015-03-18

School

S. Rajaratnam School of International Studies

Abstract

In the past few years, the pace of economic growth in South Asia has slowed considerably
for two reasons: unfavourable global economic environment and the slowing pace of
economic reforms that once were the key drivers of the region’s dynamic economic
performance and resilience. This paper focuses on the latter and following Rana (2011) and
Rana and Hamid (1995), it argues that South Asian countries have not sequenced their
reforms properly. The first round of reforms in South Asia that began in the 1980s and the
early 1990s focused on macroeconomic reforms — monetary, fiscal, and exchange rate
management, as well as reducing rigid government controls — which led to private sector
driven economic growth. These should have been followed by the more microeconomic
reforms — sectoral and the so-called “second generation” reforms to strengthen governance
and institutions — to sustain the higher growth levels. But they were not and reforms ran out
of steam because of, among others, lack of law and order, and corruption in the public
sector. This paper finds a significant “governance gap” in South Asia that refers to how
South Asia lags behind East Asia in terms of various governance indicators and how within
South Asia some countries are ahead of others. The paper argues that in order to revive
economic growth, South Asian countries must implement microeconomic reforms: it
identifies the remaining policy agenda for each South Asian country. However,
implementation of microeconomic reforms poses a difficult challenge as they require a wider
consensus and political support and have a longer term focus. The recent election of Prime
Minister Narendra Modi in India with a strong mandate for economic reform provides an
environment of “cautious optimism” for all of South Asia.